Battling Time: Sears Fights To Finish Restructuring

NEW YORK — A year after launching the largest restructuring in its corporate history, Sears, Roebuck & Co. finds itself facing a new challenge: having enough time to see the project through.

Time is what Sears, the nation's largest retailer, says it must have if it is going to turn around the company's sagging earnings and regain its stronghold in the marketplace.

What's not known is whether the money managers on Wall Street will allow the company that luxury.

The question was asked of Sears Chairman Edward A. Brennan during a meeting last week between Sears officials and about 200 financial analysts from around the country.

"What's going to give first?" one analyst asked, the implementation of a restructuring plan as the company wants it "or the screaming demands of Wall Street to improve your earnings?"

"That's a very good question and not just because I ask it all the time," replied Brennan, who estimates the restructuring won't be completed until 1993. Brennan said he knows "there's some risk involved" for the company if improved profits are slower in arriving than the investment community expects, or fail to come at all.

"We are going to move at a manageable pace," said Brennan. "You can't tear up everything at once. We have great confidence."

One year ago, the company announced a complete overhaul of its retail and financial operations, an announcement triggered in large part by the concerns of Wall Street about the company's poor earnings and the brisk trading activity that led some to believe it was a target for takeover.

The new strategy called for the introduction of "everyday low prices," a tactic that places less emphasis on sales and more on offering goods at prices competitive with discount and specialty stores. And Sears, which built its reputation on a long line of private label goods such as Diehard Batteries and Kenmore Appliances, is now selling more national brand name goods.

Since Sears announced makeover plans, the use of high-yield junk bonds has fallen out of favor as a tool to underwrite corporate takeovers. But that factor has not made Sears less of a target, said John Landschulz, a retail analyst at Cowen & Co. in Chicago.

In fact, he said, the well-thought-out restructuring plan, coupled with the company's poor earnings performance since then, only serve to make the company more vulnerable.

The new merchandising format, introduced in March, has not bolstered sagging company profits. For the three months ended Sept. 30, the company reported net income of $257.5 million, or 75 cents a share, down 15.5 percent from $305 million, or 80 cents a share, for the 1988 quarter. Revenues were $13.2 billion, up 4.8 percent.

Sears has cited slow sales in durable goods, such as stoves and refrigerators, as the reason for its sales decline. But critics say the numbers reflect consumer dissatisfaction with the new strategy.

The current downturn in the junk-bond market won't stop takeovers, said Landschulz. "Companies that have instituted major changes, that have a future and whose stock is priced right have always been vulnerable, and they still are because you know the asset value is there."

Sears stock price has moved unevenly this year. It has been as high as $48.12, as low as $37.87, and lately it's been trading at its low end.

Despite the current market climate, Sears is not discounting a takeover scenario, Brennan said.

"The environment has changed and the environment can change again," he said. "Our thrust is on improving our operating performance."

Sears has operating margins of about 3 percent. Those numbers should be higher, Brennan said, at least in the 4 to 5 percent range.

At the analysts' meeting, the company said that, other than the sale of the company's Sears Tower, all proposed changes announced last year have taken place and have saved about $145 million.

The changes include about 2,500 job cuts, including more than 1,500 management jobs. Most cuts came in the company's 6,000-member Merchandise Group, and others resulted from changes in Sears' catalog and distribution systems.

A number of analysts said they are more convinced now than they were a year ago that the company's plan is workable.

They also praised Sears' candor in discussing the company's high and low points during the last year.

Among the low points have been Sears' slower than anticipated roll-out of its new merch andising format, which has resulted in lower than anticipated sales. Another is its higher than expected costs associated with introducing the new programs, which has affected profit margins.

For example, the company said advertising costs for the introduction of its specialty Brand Central electronics and appliance format have been higher than expected.

Company officials said they expect to see improved earnings during the second half of 1990.

Sears seems to be a more aggressive company than in the past, said Edward Weller of Montgomery Securities in San Francisco.